In response to US tariffs on $30 billion of Chinese imports that came into effect this week, the People's Bank of China set its yuan mid-point at an 11-1/2-year low versus the dollar.
That follows a decision last month to let the currency slip past the 7-per-dollar rate, a barrier few expected to be breached, reinforcing the view it will be a drawn-out battle. The PBOC allows the yuan to trade in a 2% range around a mid-point it fixes against the dollar each day.
The latest August 29-September 4 Reuters poll of nearly 60 strategists showed the yuan is expected to trade around 7.19 to the dollar in six months, over 0.5% weaker than Wednesday's 7.15, before readjusting to 7.16 in a year. That marks the third month in a row where analysts have lowered their yuan outlook.
"For currency markets, the last month's tariff-inspired yuan fall is much more important than it would have been were China still a minor player in global trade," said Kit Juckes, FX strategist at Societe Generale in London. Nearly two-thirds of analysts who answered an additional question said China would fight the US trade war by depreciating the yuan further.
"There's a risk the US retaliates to yuan weakness, or to other currencies falling as a result of the yuan weakening. More tariffs could see more yuan weakness and more risk President Trump reacts to that, too. Dominos can fall over," added Juckes. The most pessimistic 12-month view, 7.75 per dollar in the latest and previous surveys taken after the yuan breached the 7 per dollar rate, is the weakest since polling began more than a decade ago for the currency. That suggests a clear bias towards a further downgrade.